Yu Tzong-shian explains: "During the Civil War, goods and provisions from Taiwan were shipped to the mainland to support the war effort." After the fall of the mainland and the severing of communications across the Taiwan Strait, the island experienced desperate material shortages. Hoarding and speculation were rampant. Between 1945, when Taiwan was recovered from the Japanese, and June 1949, wholesale prices multiplied by a factor of 5,600, and you needed a sackful of banknotes just to buy a cut of pork in the market. Solid gold confidence
At that critical juncture, a shipment of 800,000 taels of gold arrived from Shanghai, and the government announced a major devaluation: one New Taiwan Dollar equivalent to 40,000 old currency units. This helped to stabilize prices, but also angered the people.
W.L. Shi, chairman of Chi Mei Corporation-the world's largest producer of the plastics raw material ABS-still recalls that event with indignation. "So much for Taiwan being on the winning side in the war. There was little devaluation of the Japanese currency, yet Taiwanese banknotes were reduced to toilet paper!"
It was a time of hardship and upheaval for the whole country, and while many people were forced to endure losses at the time, when all accounts are reckoned up today, 50 years later-in a Taiwan that has emerged from the destitution of the post-war years to become "awash with cash"-it would be fair to say that the people have probably earned back more than they paid out.
During its early years on Taiwan, the bedraggled Nationalist government was terrified that the Chinese Communists would export their "worker-peasant-soldier revolution" across to the island on the back of their victory in the Civil War. It therefore implemented its own package of land reforms, including the "37.5% rent reduction" policy and the "land to the tillers" program. Land was compulsorily acquired by the government in return for shares in the four major state-owned corporations of the day. Though landowners complained bitterly, the reforms proved remarkably successful at stimulating agricultural production.
The 1950s and '60s were decades of soaring growth for Taiwan's agricultural sector. Exports of agricultural produce and processed goods, above all to Japan, formed the foundation of Taiwan's agriculture-based economy in that period. In 1957, cane sugar alone accounted for over 60% of the total value of Taiwan exports.
Three baskets of bananas
The chairman of the Council for Economic Planning and Development (CEPD), P.K. Chiang, who graduated from agricultural college, describes what happened when he was awarded a Chungshan Scholarship from the KMT in 1961. He wanted to go to Japan to study, but his father was opposed.
Explains Chiang: At the time I earned NT$900 a month, and took the wage-packet straight home to my father without opening it. Going away meant NT$900 less for him." However, he told his father: "Leave it to me, I'll get you NT$1,000 a month!" He sold off the US$200 check that had been provided for his airfare, bought a ticket for travel between Keelung and Kobe by ship, and handed the balance to his father. Then, to take advantage of duty-free entry into Japan, he bought three baskets of bananas and three cases of canned pineapple before boarding the liner.
"In Japan, each basket of bananas sold for US$10, or ¥3600," says Chiang, recalling the popularity of Taiwanese agricultural produce in Japan at that time. "Three baskets meant US$30, exactly enough for one year's tuition fees at Tokyo University!" .
While establishing a firm agricultural footing for the economy, the government also used agriculture to support the development of light industry. In 1962 Taiwan's industrial output exceeded agriculture in value for the first time, and so began the island's "Age of Industry."
With foreign exchange in short supply Taiwan was unable to afford imported machinery. As part of a vigorous drive to attract foreign investment, the government promulgated the Export Processing Statute, providing for five years of tax-free business operation, and in 1966 the world's first export processing zone was set up in Kaohsiung. Chiang, who was studying for his PhD in Japan at the time, was sent around the country making speeches to attract Japanese business. The most prominent success of the campaign was the establishment of a factory in the Taichung export processing zone by Canon, the Japanese manufacturer of optical products .
Island-type economy
Says Chiang: "I was instructed that the projects we attracted didn't have to be too large-around US$50,000 in value was enough, so long as they employed at least 50 people." In the early 1960s Taiwan's economy was about to undergo transition, with unemployment at over 4%, and labor-intensive export processing industries provided alternatives for the enormous rural workforce.
At that time the government benefitted from the far-sighted thinking of financial and economic experts such as Yin Chung-jung, Li Kuo-ting and Wang Yi-ting. They recognized early on that self-sufficiency was not an option for an island-type economy like Taiwan, and that external-oriented development was necessary. This meant that Taiwan needed urgently to bring in foreign investment while also expanding its export markets, in order to build up foreign exchange funds. It was an impressively forward-looking approach for that period, especially when compared with South Korea, which didn't launch its own assault on international markets until the late 1960s.
"1963 to 1980 was when Taiwan's economy really took off," says Yu Tzong-shian. "It was also in this period that Western countries took notice of the remarkable performance of a group of small East Asian economies, and the term 'four little dragons' was coined for Taiwan, Korea, Singapore and Hong Kong." In spite of the two global oil crises, Taiwan chalked up an impressive 9.2% annual growth rate between 1952 and 1980. Perhaps the only comparable performance elsewhere has been that achieved by mainland China during the past two decades.
Taiwan was able to attract the foreign investment it needed because of a stable political situation and ample reserves of low-cost non-unionized labor. Meanwhile, the island was building a record of export success on the back of the persistence and determination of its countless small and medium-sized enterprises (SMEs). A good market
Since the early 1980s when he was secretary-general of CETRA, P.K. Chiang has criss-crossed the globe in the company of Taiwanese firms. In those days, wherever there was a trade show, they would attend, and where not, they would simply open their cases and start supplying buyers on the spot. Taiwanese have been a highly visible feature of the major computer show CeBIT, in Germany, ever since the take-off of the IT industry, consistently forming one of the three largest national contingents at the event. They were there in Vietnam before it opened up, when there were no hotels and visitors had to stay on boats; they were in Turkey, in Pakistan, and in the stifling heat of Egypt; and they found their way into the former USSR when the first openings began to appear. Everywhere, businesspeople from Taiwan found goals to pursue.
"It doesn't matter if a market is large or small, near or far," says Chiang, who has been greatly impressed by the flexibility and tenacity of Taiwanese firms. "So long as you can make money there, it's a good market."
The all-out expansion of export markets brought a rapid accumulation of wealth for the country, but at the same time the long-term policy of holding down the value of the NT dollar in order to support exports brought strong objections from Taiwan's main trading partners, particularly the US.
In 1987 Taiwan's trade surplus with the US reached a record high of US$16 billion, and there began to be negative consequences. First, there was a significant appreciation in the value of the NT dollar, which strengthened from 40:1 against the US dollar in 1985, to 25:1 in 1991, generating a massive influx of funds. At the same time, because of insufficient outlets for these funds, the national surplus savings level grew too high, reaching 40% at one point. There was so much liquidity in the system that a bubble economy began to develop, resulting in a huge mess which has yet to be fully resolved.
Says Yu Tzong-shian: "Taiwan had only recently shaken off poverty, and worries persisted about lack of savings and insufficiently rapid growth. But there was little alertness to the risk of economic overheating, and it is a pity that measures were not taken sooner to cool things down." The "sudden wealth" trap
Property prices in Taiwan tripled from 1986 to 1991, and the stockmarket soared to a peak of 12,000 points in early 1990, only to crash to the 2,500 level within eight months. As a result of this dramatic flux there was a wholesale and merciless reshuffling of national wealth, which widened the gap between rich and poor, made it impossible for most people to afford their own homes and severely penalized those who had blindly invested in the stockmarket. These factors, along with ballooning consumer prices and a general sense of restless anxiety, seriously undermined the traditional work ethics of practicality and diligence.
The pressures of currency appreciation, soaring prices and rapidly rising land and labor costs all worked to deprive traditional industries-accustomed to prospering on tiny margins-of room for survival. Fortunately it was around this time that Southeast Asian economies like Thailand, the Philippines and Indonesia began to take off, providing Taiwanese firms with the opportunity to "go south." The year 1987 also saw an opening of exchanges across Taiwan Strait. Taiwanese businesspeople began streaming across to the mainland to "visit family" and became the vanguard of cross-strait "economic unification," while also helping to spur the "Chinese economic miracle" of the past decade.
Although the bubble economy sapped Taiwan of some of its vitality, Hsing Mu-huan, a fellow of the Academia Sinica and known as a liberal economist, believes that we ought really to thank the US for forcing Taiwan to confront the challenges of liberalization and globalization. Had this taken place five years later, the economies of Southeast Asia and mainland China would already have found their feet, leaving little leeway for Taiwanese firms, and if domestic industry had not started to upgrade itself in time, the "economic miracle" would today be a thing of the past.
At that time however, with Taiwan's traditional industries migrating en masse, there were widespread calls for measures to counter the hollowing-out of industry. P.K. Chiang was then political vice minister at the Ministry of Economic Affairs, and recalls that the most important job at that time was counseling firms to "upgrade," with companies working together under the guidance of the Industrial Technology Research Institute (ITRI) to develop new products and carry out technology transfer. This proved a tricky task since Taiwan had built its economy on the back of its trading prowess, and while its SMEs were good at "selling things" they were less so when it came to R&D. How the "3Cs" saved Taiwan
Just when everyone was worried about upgrading traditional industries, the new high-tech IT sector, first established in the early 1980s, began to produce results. This helped to fill the gap left by departing industries, and brought a new dawn for Taiwan's economy.
Former ITRI president Lin Chui-chou recalls the first National Technology Conference, held in 1978, by which time the government already recognized the limitations of an industrial structure built around SMEs. Energy, materials, information and automation were designated as national priority technologies, and measures were proposed for attracting home high-tech specialists from Taiwan who were living abroad.
The Hsinchu Science-Based Industrial Park, which was being planned at that time, included provision for bilingual schools and American-style residential communities. This was also the period when diplomatic ties with the US were cut, which aroused resentment in Taiwan and led some Taiwanese abroad to return home as an expression of solidarity. Looking back today, it is clear that three major elements in the successful development of Taiwan's IT industry were the R&D work of ITRI, the efforts of companies involved in the science park, and the education and promotion undertaken by the Institute for Information Industry.
In 1980, Taiwan's first integrated circuit (IC) manufacturer, UMC, was spun-off from the R&D department at ITRI. Less than 20 years later, Taiwan is home to 38 IC production plants and is the world's fifth largest chip producer.
The rapid ascent in the late twentieth century of the "3C" industries-the capital- and technology-intensive semiconductor industry (ICs), computer component production and assembly (PCs), and electronic consumer goods (ECs)-has given Taiwan a strong hand in terms of global economic competition.
Smiles Yu Tzong-shian: "Within a single decade Taiwan transformed itself from the Toy Kingdom into an IT power. Taiwan is probably unique in terms of its firms' flexibility and their ability to swarm over a new sector like this!"
Looking to the future of global competition in the high-tech sector, things are clearly going to be tougher than in the past, when you could "take on the world with a suitcase of goods." Elbow grease and globetrotting business trips are no longer any guarantee of success.
Minister without portfolio Yang Shih-chien, who handles domestic technology policy, explains: "Innovation is everything in high-technology. A brilliant, ground-breaking idea can open up a whole new field of industry. But innovation requires huge quantities of financial and human resources dedicated to R&D, with laboratories pursuing technological breakthroughs around the clock, and with professional investment managers able to turn innovative ideas into products and profits."
To address these issues, Taiwan has been learning hard from Silicon Valley in the US, striving to make drastic changes and improvements in terms of system, philosophy and cultural levels.
APROC
As the twentieth century draws to a close, global competition is now an established fact. It was in order make full use of Taiwan's advantages as an export-oriented economy that can draw on an extensive network of Chinese business ties throughout the region, that the government launched the Asian Pacific Regional Operations Center (APROC) plan in the early 1990s. The aim was to turn Taiwan into an operations and transshipment center along the lines of Hong Kong and Singapore, covering manufacturing, transportation, finance, media and telecommunications, and attracting investment from foreign firms.
Unfortunately, little headway has been made with this much-heralded plan, due to continuing tensions in cross-strait relations and the difficulty for Taiwan of expanding economically into the mainland. In its recently issued 1999 White Paper, the American Chamber of Commerce in Taipei expressed reservations about the government's insistence on its "no haste, be patient" policy for commercial ties with the mainland, and its unwillingness to open the way to direct links across the Taiwan Strait, and suggested that Taiwan has missed its opportunity to become a regional operations center for the Asia-Pacific.
However, P.K. Chiang avers that the chief aims of APROC were deregulation and liberalization, and that convergence with the mainland is not a necessary condition for realizing the project. As an example he points out that the US firm UPS has made CKS Airport its main distribution and transshipment base for the Asia-Pacific region. He also cites the passage of the Cable Television Law in 1993, and this year's Satellite Television Law, leading to the establishment of a number of new satellite channels, each providing 500-600 jobs. Also, in 1996, amendment of the Telecommunications Law enabled the participation of private enterprise-a move which instantly energized the communications market and led to firms investing sums in the tens of billions of NT dollars. These deregulation measures, designed as part of the APROC plan, have already helped realize the goal of stimulating private investment.
A post-miracle economy
While industrial competition is still the lifeblood of the economy, the age of the "financial economy" has already arrived. Yu Tzong-shian explains that a financial economy is characterized by high risk plus high profits. With rapid flows of information and capital it becomes essential to establish fair rules of the game, along with a tight regulatory regime for the finance sector.
The domestic financial crisis which afflicted Taiwan from the middle of last year until early this year, exposed several legally dubious forms of high-risk transaction, including excess loans, and high rates of stock collateral for company directors. Recently, the former president of the Control Yuan, Wang Tso-yung, publicly labeled the Taiwan stockmarket a "cannibal market." The challenges of a financial economy have clearly only just begun to emerge, and economic policy will probably now confront more difficulties and resistance than ever.
A distinguishing feature of the financial economy is that "money breeds money." At the same time, the winners in the information age are those who control knowledge and technology. Both factors mean that the poor get poorer and the rich get richer. The concern is: Does further economic development have to be at the cost of a fair society?
Chiang frankly admits that competition is going to be fierce in the future, but says that economic development cannot be left to languish, and that the risks of the employment market will have to be jointly offset by job security and social welfare. The government has thus introduced packages in recent years providing for unemployment insurance and a national pension plan. After all, the object of economic development is not to enrich a lucky few but rather to seek maximum well-being for the greatest number of people.
Environmental damage is another development-related concern. Most rivers on the "beautiful island" of Formosa are severely polluted, and rainstorms can trigger mudslides which bury homes and kill people. Cadmium-tainted fields, radioactive steel rebar, mercury-contaminated mud . . . the environmental warning signals are going off all the time. But to date, Taiwan's environmental movement has largely been geared to holding protests in pursuit of "compensation" and has lacked a sense of genuine respect for the natural environment. What Taiwan must now do is move beyond the obsession with economic development to arrive at a truly sustainable way of doing things.
Years of strenuous labor have brought Taiwan to a state of material prosperity unknown in thousands of years of Chinese civilization. This provides the Nationalist government, so battered and bruised when it first arrived, with its way of accounting for itself before history and before the people. But economic development is not irreversible. Thirty years ago people in Taiwan wanted to get to the Philippines to earn their fortune. Nowadays, our streets are crowded with domestic helpers and laborers from that country. Careful deliberation is required if we are to maintain steady economic progress for Taiwan in the "post-miracle age."
